Massive VAT evasion, how the mafia and camorra laundered dirty money

An investigation by the European Public Prosecutor's Office today led to the execution of 47 precautionary measures and the seizure of over €500 million, uncovering a complex intra-Community VAT carousel fraud in the electronics and IT sector involving members of the Mafia and Camorra.

This operation affected several EU countries, including the Netherlands, Luxembourg, Spain, the Czech Republic, Slovakia, Bulgaria, and Romania, and implicated 20 foreign companies with as many as 400 people under investigation. False invoicing totaling €1,3 billion was reconstructed during the investigation.

Among those under investigation are members of Sicilian organized crime such as Tony Lo Manto, linked to the Brancaccio clans, and members of the Nuvoletta clan from Marano and Di Lauro clan from Secondigliano. Attracted by the enormous profits, these individuals entered the circuit, providing capital and laundering dirty money from other illicit activities.

Carousel fraud exploits the VAT exemption regime for intra-Community transactions by inserting a fictitious economic entity, known as a "missing trader," into the transaction.

This individual purchases the goods from a community supplier without applying VAT and resells them to a national company, also involved in the fraud, applying the Italian VAT rate. At this point the fraudulent conduct is carried out: the shell company sells the goods below cost without paying the collected VAT to the Treasury

Managed by front men, the paper company operates without facilities and employees, issues false invoices and, after a short period of activity (maximum two years), is closed down and replaced by another company with the same characteristics.

Broker companies and the roles of nominees

This system allowed the introduction of goods at highly competitive prices into the national market, providing for additional steps to make the identification of the scheme and its final beneficiaries more complex: the broker companies.

These, by purchasing products with VAT applied, claimed tax credits with the Treasury, and resold the goods on the domestic or foreign market at reduced prices, often to the same community companies that had given rise to the chain, in order to restart the carousel.

The damage to the European Union stemmed from unpaid VAT by paper mills, which placed the goods on the domestic market, charging the tax without paying it to the Treasury, instead dividing the proceeds among their accomplices. The uncovered fraud involved 269 "missing traders," 55 buffers, 28 brokers, and 52 foreign conduit companies, for a total of €1,3 billion in false invoices in the four-year period 2020-2023 alone.